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288 X-4357 The a t t a c h e d a r t i c l e h a s "been prepared, i n r e s p o n s e t o a r e q u e s t "by t h e A s s o c i a t e d P r e s s f o r a statement concern* i n g t h e s i g n i f i c a n c e o f the r e s t o r a t i o n o f t h e g o l d s t a n d a r d i n Great B r i t a i n . I understand the Associated Press w i l l use i t for publication in morning p a p e r s o f May 2 4 t h . A. C. K i l l e r May 2 3 , 1 9 2 5 . 289 X-4337 RESTORATION OF BRITISH GOLD STANDARD: (A. C. M i l l e r , WHAT IT MEMS. Federal Reserve Board.) S t e r l i n g exchange i s a t g o l d parJ What d o e s t h i s mean? In a m e r e l y t e c h n i c a l s e n s e i t means t h a t t h e E n g l i s h p a p e r pound has a v a l u e i n the exchange markets of the world e q u i v a l e n t to t h e English sovereign. In terms o f American g o l d c u r r e n c y t h i s means t h a t i t i s worth $ 4 , 8 6 6 . In o t h e r words, t h e E n g l i s h pound now and h e n c e f o r t h h a s a d e f i n i t e g o l d v a l u e "by r e a s o n of i t s i n t e r c h a n g e a b i l i t y a t t h e Bank o f England w i t h the g o l d s o v e r e i g n . But t h e a t t a i n m e n t o f p a r by t h e E n g l i s h pound h a s much more t h a n a technical significance* I t i s i n i t s e l f one of t h e most i m p o r t a n t s t e p s a c h i e v e d s i n c e t h e A r m i s t i c e toward w o r l d economic r e s t o r a t i o n . More e v e n t h a n t h a t , i t i s a n i l l u m i n a t i n g and g r a t i f y i n g s i g n o f how f a r toward c o m p l e t i o n t h e whole p r o c e s s o f p o s t - w a r r e a d j u s t m e n t h a s run i t s c o u r s e . Ever s i n c e the A r m i s t i c e a g r i c u l t u r e , t r a d e and i n d u s t r y t h e whole w o r l d o v e r - i n t h e U n i t e d S t a t e s a s w e l l a s e l s e w h e r e , i n one d e g r e e or a n o t h e r h a v e b e e n s t r u g g l i n g a g a i n s t t h e h a n d i c a p o f c u r r e n c y d i s o r g a n i z a t i o n and e x c h a n g e derangement. "Back t o normal" h a s b e e n a l o n g i n g o f t h e d i s t r a u g h t mind o f t h e p e o p l e s of Europe, and t o them t h e r e s t o r a t i o n o f t h e i r c u r r e n c y t o a g o l d b a s i s h a s become t h e symbol and the g o a l o f "normal". How t o g e t t h e i r a f f a i r s s e c u r e l y back on a g o l d b a s i s h a s n o t , h o w e v e r , b e e n c l e a r t o a l l o f them. Such h a s b e e n t h e m e n t a l c o n f u s i o n and moral d e v a s t a t i o n p r o d u c e d by t h e warJ Time h a s , h o w e v e r , made i t c l e a r t h a t t h e r e a r e no s h o r t and e a s y c u t s . History has repeated i t s e l f - 2 again in this instance. X-4337 Mere man-made laws may sometimes be s u c c e s s f u l l y i n t e r f e r e d w i t h , "but economic law i s a s i n e x o r a b l e a s f a t e and e x a c t s i t s s t r i c t f u l f i l l m e n t . Germany l e a r n e d t h i s when, a f t e r a debauch o f h e r p r i n t i n g p r e s s c u r r e n c y t o a d e g r e e u n p a r a l l e l l e d i n the h i s t o r y of great trading n a t i o n s , her currenc y became l i t e r a l l y w o r t h l e s s and she d e c i d e d by a s t r o k e of t h e p e n to w i p e i t a l l o u t a t w h a t e v e r s a c r i f i c e and make a f r e s h s t a r t . Under t h e Dawes P l a n and w i t h t h e a s s i s t a n c e o f American g o l d t h e g o l d s t a n d a r d h a s b e e n r e s t o r e d i n Germany. And w i t h i t s r e s t o r a - t i o n Germany i s g o i n g f o r w a r d w i t h f i r m and s t e a d y s t e p s t o economic r e c o v e r y and f i n a n c i a l s o l v e n c y . For s i x y e a r s England h a s b e e n w o r k i n g t o p u t h e r s e l f on a gold basis• From a low o f $ 3 . 1 9 t h e pound h a s now r i s e n t o a p a r o f $ 4 , 8 6 6 . T h i s h a s b e e n a c c o m p l i s h e d n o t by d e v a l u i n g or w i p i n g o u t h e r c u r r e n c y n o t e s b u t by s t e a d i l y b u i l d i n g up t h e g o l d v a l u e o f her currency in the markets of the world. A d h e r i n g t o b a n k i n g and monetary t r a d i t i o n * A n d n e v e r f o r g e t t i n g t h e l e s s o n s of e x p e r i e n c e , England w i t h d o g g e d p e r s i s t e n c e h a s h e l d t o h e r c o u r s e and t o d a y s e e s h e r reward i n t h e a c h i e v e m e n t o f p a r f o r h e r exchange • The i m p o r t a n c e o f t h i s a c h i e v e m e n t , whether i t b e l o o k e d a t from t h e p o i n t o f v i e w Z o f t h e w o r l d ' s i n t e r e s t o r o f our n a t i o n a l American i n t e r e s t , c a n n o t e a s i l y be e x a g g e r a t e d . The a c t i o n r e - c e n t l y : ^ & e n by t h e B r i t i s h P a r l i a m e n t i n o r d e r i n g a r e s t o r a t i o n o f t h e g o l d s t a n d a r d and t h e r e e s t a b l i s h m e n t o f London a s a f r e e g o l d X-4337 market was p r o m p t l y f o l l o w e d by s i m i l a r a c t i o n i n t h e s e l f - g o v e r n i n g commonwealths o f t h e B r i t i s h Empire and "by c o u n t r i e s iti Europe t h a t were a w a i t i n g E n g l a n d 1 s d e c i s i o n . The r e s u l t i s t h a t t h e r e a r e now o n l y t h r e e of t h e l a r g e r n a t i o n s , and R u s s i a , t h a t have s t i l l to wit - France, Italy t o swing i n t o l i n e i n making t h e g o l d s t a n d a r d p r a c t i c a l l y u n i v e r s a l and r e s t o r i n g i t t o t h e p r i m a r y p o s i t i o n i t o c c u p i e d "before t h e war a s an i n t e r n a t i o n a l r e g u l a t o r o f money and e x c h a n g e , B e f o r e t h e war t h e g o l d s t a n d a r d was w e l l - n i g h u n i v e r s a l among t h e t r a d i n g n a t i o n s of t h e w o r l d , and London was t h e most i m p o r t a n t o f t h e w o r l d ' s f r e e g o l d m a r k e t s and f i n a n c i a l c e n t e r s . I t s p o s i t i o n was u n i q u e . The pound s t e r l i n g h a d a t t a i n e d a p o - s i t i o n o f p r i m a c y a s a monetary u n i t o f i n t e r n a t i o n a l a c c o u n t i n g and payment» I t i s n o t t o o much to s a y t h a t t h e s u c c e s s f u l m a i n - t e n a n c e and t h e e f f e c t i v e o p e r a t i o n o f t h e g o l d s t a n d a r d i n p r e war days was l a r g e l y due t o t h e s k i l l and t h e s u c c e s s w i t h w h i c h London c o n d u c t e d h e r monetary and "banking a f f a i r s i n m a i n t a i n i n g a f r e e g o l d market and t h u s " b u t t r e s s i n g the g o l d s t a n d a r d i n o t h e r g o l d - u s i n g or g o l d - e x c h a n g e - s t a n d a r d c o u n t r i e s . By r e a s o n o f t h e g r e a t c h a n g e s t h a t h a v e come a b o u t i n t h e w o r l d o f commerce and f i n a n c e i n t h e p a s t t e n y e a r s t h e U n i t e d S t a t e s h a s "become t h e w o r l d ' s g r e a t e s t g o l d c e n t e r and t h e w o r l d ' s leading f r e e g o l d market. But e v e n t s have d e m o n s t r a t e d p r e t t y c o n c l u s i v e l y that the United S t a t e s could never expect to get the 292 - 4 - X-^337 f u l l b e n e f i t s o f t h e s t e a d y i n g i n f l u e n c e on h e r a f f a i r s o f the g o l d s t a n d a r d u n t i l i n t e r n a t i o n a l g o l d f l o w s resumed a normal c o u r s e t h r o u g h t h e r e e s t a b l i s h m e n t u f London a s t h e mcst i m p o r t a n t o u t s i d e f r e e g o l d market. T h i s p o s i t i o n h a s now b e e n v i r t u a l l y a t t a i n e d . The g o l d s t a n d a r d i s now i n e f f e c t i n f o u r - f i f t h s or more o f the c o m m e r c i a l world. The f a n t a s t i c v a g a r i e s which a c e r t a i n s c h o o l of e c o n o m i s t s on b o t h s i d e s of t h e A t l a n t i c h a v e embraced i n t h e i r e f f o r t s t o f i n d a s u b s t i t u t e f o r t h e g o l d s t a n d a r d have g i v e n way b e f o r e t h e w o r l d ' s r e s o l u t i o n t o t i e i t s f a t e i n monetary m a t t e r s i n t h e f u ture, as i n the p a s t , t o s o m e t h i n g more o b j e c t i v e and l e s s c a p r i c i o u s than f a l l i b l e human d i s c r e t i o n . a r t i f i c i a l devices, tion," etc., tiowgVer i n t e r e s t i n g the v a r i o u s such a s "managed c u r r e n c y , *• ^ r i c e s t a b i l i s a - t h r o u g h c r e d i t m a n i p u l a t i o n might b e a s e n t e r p r i s e s i n c e l e s t i a l economics, they o f f e r e d l i t t l e p r a c t i c a l comfort to a w o r l d w e a r i e d w i t h s u f f e r i n g s f r o m wobbling e x c h a n g e s . s t o n e s to a world crying f o r bread. They b r o u g h t The c l o u d s o f u n c e r t a i n t y and c o n f u s i o n w h i c h h a v e r e s t e d o v e r t h e w o r l d ' s monetary h o r i z o n f o r a decade were n o t to be l i f t e d by such d e v i c e s . With t h e g o l d s t a n d a r d i n p r a c t i c a l o p e r a t i o n i n t e r n a t i o n a l t r a d e and f i n a n c e can a g a i n b e c o n d u c t e d w i t h o u t t h e u n c e r t a i n t i e s and r i s k s a t t e n d i n g f l u c t u a t i n g monetary u n i t s . Few t h i n g s add more t o t h e h a z a r d s o f t r a d e or g i v e i t more o f a s p e c u l a t i v e c h a r a c t e r than f l u c t u a t i n g exchanges. diminishes trade. Exchange derangement d i s c o u r a g e s and The r e e s t a b l i s h m e n t of t h e pound s t e r l i n g a s a 293 - 5- X-4337 d e p e n d a b l e m o n e t a r y u n i t o f i n t e r n a t i o n a l payment may, t h e r e f o r e , baexpected t c give a substantial boost to international trade f r o m which we i n t h e U n i t e d S t a t e s may e x p e c t t o be g r e a t g a i n e r s . I n t e r n a t i o n a l t r a d e con now p r o c e e d i n a more o r d e r l y and n o r m a l f a s h i o n and ha,ve l e s s of the s p e c u l a t i v e c h a r a c t e r i t h a s had i n recent years. A n y t h i n g t h a t p r o m o t e s the t r a d e of the w o r l d by g i v i n g i t a s a f e and s t a b l e b a s i s i n the f o r e i g n e x c h a n g e s w i l l eaaure t o our a d v a n t a g e , f o r o u r s i s t h e g r e a t e s t f o r e i g n t r a d e o f any c o u n t r y . Everyone i n t h e U n i t e d S t a t e s , whether e n g a g e d i n a g r i c u l t u r e , commerce, i n d u s t r y or f i n a n c e , w i l l i n t i m e f e e l , t h o u g h he may n o t be aware o f i t , t h e s t i m u l a t i o n t h a t w i l l come w i t h t h e r e s t o r a t i o n o f t h e w o r l d ' s i n t e r n a t i o n a l machinery o f exchange- t o t h e f i r m and s e c u r e b a s i s a s s u r e d b y t h e r e s t o r a t i o n of the gold standard. I t may a l s o be e x p e c t e d t h a t , w i t h t h e removal o f t h e dams which h a v e o b s t r u c t e d t h e n a t u r a l f l o w of g o l d from c o u n t r y t o c o u n t r y , c r e d i t w i l l be l o o s e n e d and a f f o r d s t i m u l a t i o n i n h e a l t h f u l and s a f e ways t o t r a d e among t h e n a t i o n s and i n d u s t r y w i t h i n them. With s u c h an u n d o u b t e d and i m p o r t a n t i n t e r e s t a.t s t a k e i n the r e s t o r a t i o n of the gold standard, the U n i t e d S t a t e s c l e a r l y h a s an i n t e r e s t i n p r o m o t i n g anJ a s s i s t i n g i t s r e e s t a b l i s h m e n t . And a s t h e l a r g e s t s i n g l e h o l d e r of t h e w o r l d ' s stock, o f monetary g o l d , we i n t h e U n i t e d S t a t e s n o t o n l y have an i n t e r e s t i n t h e - 6 - x-i+3 r e s t o r a t i o n of t h e g o l d s t a n d a r d b u t a duty t c a s s i s t i n i t s r e s t o r a t i o n and m a i n t e n a n c e w h e r e v e r c o n d i t i o n s g i v e d e f i n i t e p r o m i s e of s u c c e s s . I t i s f c r t h i s r e a s o n t h a t our F e d e r a l R e s e r v e Banks h a v e a r r a n g e d t c l e t seme o f t h e i r g o l d , t h e Bank c f England h a v e s h o u l d i t be n e e d e d by t h e Bank of B i g l a n d i n t h e f i r s t s t a g e s of E n g l a n d ' s resumption o f g o l d payments and t h e p r a c t i c e s of a f r e e g o l d market. I t d o e s n o t seem l i k e l y a t t h i s t i m e t h a t t h e Bank o f England w i l l have much or f r e q u e n t o c c a s i o n t o draw on our g e l d s u p p l y , but p a s t e x p e r i e n c e shows t h a t d i f f i c u l t i e s may b e e n c o u n t e r e d i n t h e e a r l y s t a g e s of g o l d r e s u m p t i o n and t h a t i t i s , n o t t o b e p r e p a r e d t o meet them. therefore, inadvisable The Bank o f England and t h e B r i t i s h Government h a v e , t h e r e f o r e , a c t e d w i s e l y i n a r r a n g i n g f o r American g o l d c r e d i t s t o b e drawn upon i n c a s e o f n e e d . I t was p a r t i c u l a r l y t h o u g h ® a d v i s a b l e t o h a v e an American c r e d i t o f i m p r e s s i v e amount f o r t h e p u r p o s e o f d i s c o u r a g i n g i n advance and b e a t i n g o f f and d e f e a t i n g any s p e c u l a t i v e d r i v e s t h a t might b e made b y o p e r a t o r s anyvtiiere i n t h e world a g a i n s t s t e r l i n g exchange> i f s u c h drivefe should b e a t t e m p t e d . By c o o p e r a t i n g w i t h England i n her endeavor t o p u t t h e g o l d s t a n d a r d i n t o e f f e c t i n h e r money market t h e U n i t e d S t a t e s ha,a a g a i n s u p p l i e d a c o n s t r u c t i v e f a c t o r o f t h e g r e a t e s t c o n s e q u e n c e i n h e l p i n g t o p l a c e t h e economic and f i n a n c i a l a f f a i r s of t h e w o r l d c n a s o l i d and s a f e b a s i s . May 2 3 , 1 9 2 5 .
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